The government alleges Kwok and Chan told Stairs about a
June 2009 share placement three days before it was publicly
announced, and the fund manager traded profitably as a result,
according to a notice released by Hong Kong’s Market Misconduct
Tribunal yesterday.

While insider trading can be punished by 10 years in prison
and a HK$10 million ($1.3 million) fine in a criminal court in
Hong Kong, the tribunal hearing this civil case only has the
power to disgorge profits made or losses avoided. It can also
ban individuals from being a director or manager of a
corporation, and from dealing in any securities.

“All insider dealing cases are made on the facts,” said
Simon Clarke, a partner at law firm Allen & Overy LLP in Hong
Kong when asked if the city’s regulators are stepping up
enforcement against insider trading.

The portfolio manager at Fidelity Management & Research
Company allegedly netted HK$1.98 million on behalf of the funds
that he managed by selling 374,000 shares prior to the placement
and then buying 630,000 shares at a lower price as part of the
stock sale.

Other institutional investors told about the Chaoda
placement were Janus Capital Management, Wellington Management
Company LLP and BlackRock, according to the notice, signed by
Hong Kong Financial Secretary John Tsang and dated July 25. The
tribunal is expected to take up the matter again on Jan. 30.

‘No Laws Violated’

Boston-based Fidelity Investments conducted a thorough
internal review of the matter in 2009 and believes that Stairs
didn’t violate any laws or regulations, according to spokesman
Vincent Loporchio.

“He continues to be an employee in good standing,”
Loporchio said.

Rimsky Yuen, a lawyer for Kwok, and Graham Harris, a lawyer
for Andy Chan, didn’t comment on the case after the proceedings.

Jane Ingalls, a spokeswoman for Janus, said no one at the
firm acted on information from the call.

“A Janus analyst who was on the call was concerned that
material non-public information was disclosed and reported it
immediately to Janus’s compliance department,” Ingalls said in
a telephone interview. “Trading in the stock was restricted
immediately after the call.”

Shares Suspended

Chaoda’s shares slumped 27 percent and were suspended on
Sept. 26 after the misconduct proceedings were first reported.
Eric Yip of Christensen, which handles investor relations for
the Chinese food producer, didn’t respond to a request for
comment yesterday.

Tribunal chairman Michael Lunn said he returned to Hong
Kong yesterday afternoon to convene the hearing.

Founded in 1994 by Kwok, Chaoda first listed in Hong Kong
in 2000. Kwok, 55, is a member of the Chinese People’s Political
Consultative Conference, China’s top political advisory body,
and has a 19.6 percent stake in the company, according to data
compiled by Bloomberg.

Chaoda’s market value has been cut by HK$11.9 billion since
Next Magazine alleged in a May 26 report that it exaggerated its
farmland, which was denied by the company.

Chaoda grows 150 types of crops at 31 production bases
across 13 Chinese provinces, according to its website. The
company employs 23,000 people and owns over 44,282 hectares of
farmland.

While the misconduct case is unrelated to previous media
reports about the company’s operations, there are still
questions about its business, according to Felix Fok, a research
partner at Ji-Asia Research Ltd.

“There’s still a dark cloud hanging over them and investor
confidence probably won’t recover soon.”